Net Present Value and Competing Projects
For discount factors use Exhibit 12B.1 and Exhibit 12B.2.
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Accounting
Net Present Value and Competing Projects
For discount factors use Exhibit 12B.1 and Exhibit 12B.2.
Spiro Hospital is investigating the possibility of investing innew dialysis equipment. Two local manufacturers of this equipmentare being considered as sources of the equipment. After-tax cashinflows for the two competing projects are as follows:
Year
Puro Equipment
Briggs Equipment
1
$320,000
$120,000
2
  280,000
  120,000
3
  240,000
  320,000
4
  160,000
  400,000
5
  120,000
  440,000
Both projects require an initial investment of $560,000. In bothcases, assume that the equipment has a life of 5 years with nosalvage value.
Required:
Round present value calculations and your final answers to thenearest dollar.
1. Assuming a discount rate of 10%, compute thenet present value of each piece of equipment.
Puro equipment:
$
Briggs equipment:
$
2. A third option has surfaced for equipmentpurchased from an out-of-state supplier. The cost is also $560,000,but this equipment will produce even cash flows over its 5-yearlife. What must the annual cash flow be for this equipment to beselected over the other two? Assume a 10% discount rate. $ per year
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